The user instance login flag is not supported on this version of SQL Server. The connection will be closed
There could be a number of reasons:
1) You have not run the aspnet_regsql (in the C:\Windows\Microsoft .NET\Framework..) folder to register the required stored procedures for the membership and/or role providers.
2) You are not using SQL Server Express and your connection string has User Instance=True.
3) You downloaded a starter kit and trying to point it to a SQL Server 2005 instance and haven't modified the default Web.config (or forgot to remove User Instance=True in the connection string).
What's the User Instance flag used for?
It is only supported for the express edition of SQL Server. It allows running applications under a least-privilege user account (LUA).
It allows the creation of a separate SQL Server Express instance (spunned off the parent instance) that runs under the security context of the current user. You can read more here.